By LIZ ALDERMAN

Published: November 24, 2010

DUBLIN — Acting to secure a $114 billion international bailout, the Irish government announced plans on Wednesday for steep tax increases and sharp cutbacks in its social welfare state.

The austerity measures, which would slash public spending by $20 billion over four years, would help pay for a severe banking crisis that has depleted the country’s finances and led to a dramatic weakening in the government that is likely to see Prime Minister Brian Cowen ousted from office early next year. A crucial, separate 2011 budget is to come to a vote on Dec. 7.

A throng of protesters shouted outside the Finance Ministry as Mr. Cowen and Finance Minister Brian Lenihan unveiled details of how the government planned to slash the deficit to 3 percent of domestic gross product in 2014, from 32 percent. Details of the plan were released as the government prepared to effectively nationalize two troubled banks that have bled the state of money, and as Standard & Poor’s lowered Ireland’s credit rating, citing concerns about how much the government was borrowing and about the vast amounts needed to shore up the country’s banking system.

In a speech Wednesday afternoon aimed at bolstering national morale, Mr. Cowen urged Ireland to “pull together as a people to confront this challenge, and do so in a united way.” He said the four-year plan would raise money mainly by taxing those who earned more, while going easier on those who had less. But he also warned that the “size of the crisis means no one can be sheltered.”

Mr. Cowen refused to answer questions about when he might step aside, an outcome that has gained momentum as opposition politicians press for his removal and the electorate blames his government for wrecking Ireland’s economy.

The prospect of political chaos in Ireland, and fears that a splintered government might roll back deficit-cutting measures amid public ire, had worried European officials and financial markets. The events in Ireland have led investors to turn their attention to the troubled economies of Spain and, in particular, Portugal. On Wednesday, Portuguese workers staged a huge strike to protest government austerity measures designed to get the nation’s finances under control.

In Ireland, trade unions were also warning of “civil unrest” and planned protests in Dublin on Saturday.

The International Monetary Fund and Ireland’s partners in the European Union insisted on an austerity budget as a condition for the $114 billion bailout, money that Ireland badly needs after it intervened to rescue its banks.

During the economic boom years before 2008, Irish banks borrowed cheaply and pumped out loans on houses and construction projects, helping to fuel an American-style housing bubble that went bust, ravaging their balance sheets.

The austerity plan calls for cuts of nearly 15 percent in Ireland’s social welfare budget, one of Europe’s most generous, saving $4 billion a year. Some 24,750 public jobs — a huge number in a country of about 4 million people — would be eliminated, cutting state payrolls down to about what they were in 2005 and saving about $1.6 billion a year. Child benefits and other social welfare payments would be reduced, and the nation’s minimum wage, now 8.65 euros, or $11.59, an hour, would be cut by 1 euro, or about $1.34, in the hope of promoting job creation.

Mr. Cowen said the sagging economy could recover only if Ireland proved it was cleaning up its act. “Without putting public finances on a sustainable basis, we can’t have confidence from investors to create jobs in Ireland,” he said. He predicted that the deficit reduction plan would help lower unemployment to less than 10 percent, from 13.4 percent currently, within four years.

While voters were angry about the crisis, there was also an acknowledgment that the boom years fueled too many excesses, which must now be reined in. “In a bubble, things get distorted, and after it collapses you need to rebalance the economy,” said Philip R. Lane, a professor of international macroeconomics at Trinity College. “So this plan is not really radically shifting the nature of the welfare state, it’s just returning it to what it was before the crisis.”

Under the measures, Ireland’s tax net would be widened to take in some low-income workers who currently pay no tax, and a series of new taxes would be imposed on certain residential properties, as well as on 120,000 people who receive public sector pensions.

The government also plans to cut spending on health care by over $1.9 billion through measures that are likely to push up the cost of private health insurance.

Capital spending on education will rise, but education programs will nonetheless take a hit starting next year, as more than $66.7 million is cut from the four-year budget. Classroom sizes may also grow if educators cannot find ways to reduce teacher payrolls.

Thousands of young Irish, along with people who have been shut out of the job market, are swelling the ranks of Ireland’s university students as they ride out a difficult economy.

Still, the austerity plan does not touch Ireland’s low corporate tax rate of 12.5 percent, which has helped to lure companies like Microsoft, Intel and Pfizer to set up operations in the country.

Though the country’s political parties are bitterly divided over many aspects of economic policy, they all agree that the low corporate tax rate is one of the few pillars that can allow Ireland to return to economic health. Multinational companies employ about one out of seven working people in Ireland, and their businesses are stoking export growth, even as the latest austerity program is expected to depress consumer demand and touch off a wave of retrenchment and job losses.

The government is expected within days to take over effective control of the two largest banks in the country, Allied Irish Banks and the Bank of Ireland, following plunges in their share prices.

Officials from the European Union and the monetary fund have been in Dublin since last week, talking with the government about the financial crisis. They will spend the next several days poring over the details of the budget plan.

Before moving on to the Finance Ministry, protesters gathered outside hotel rooms where monetary fund officials have been staying, waving signs that urged the Irish to “fight for every job, resist every cut.” The ministry did not announce where the budget would be unveiled until nearly noon on Wednesday, citing security concerns and the likelihood that crowds of protesters could grow throughout the day.

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